HDFC Bank Shares Plunge 5%; India's Largest Private Lender Announces Decline In Advances & CASA In Q1

HDFC Bank, the largest private sector lender in India, witnessed a nearly 5% decline in its share price during early trading on Friday. The drop followed the bank's Q1 business update, which revealed a sequential fall in both advances and deposits.

Quarterly Financial Snapshot

At the end of June 2024, HDFC Bank's advances stood at Rs 24.87 lakh crore, a slight decrease of 0.8% from Rs 25.1 lakh crore at the end of March 2024. This decline was primarily due to the ongoing shedding of the low-yielding corporate book, including that of the erstwhile HDFC Ltd. Despite the sequential drop, the bank's advances saw a robust year-on-year (YoY) growth of 52.6%, up from Rs 16.30 lakh crore in June 2023.

Deposits in Q1FY25 were recorded at Rs 23,79,000 crore, showing a significant YoY growth of 24.4% from Rs 19,13,100 crore. However, deposits remained flat compared to Rs 23,79,800 crore as of March 31, 2024. Excluding the impact of the merger in July 2023, the bank's deposits grew by 16.5% over the year ending June 30, 2023.

CASA Ratio and Liquidity Coverage

HDFC Bank's current and savings account (CASA) ratio, which is a measure of low-cost deposits as a proportion of total deposits, fell to 36.3% at the end of June 2024 from 38.2% at the end of March 2024. While CASA deposits increased by 6.2% YoY to Rs 8,63,500 crore from Rs 8,13,000 crore, they declined nearly 5% QoQ from Rs 9,08,800 crore.

On a positive note, the bank's liquidity coverage ratio improved to 123% in Q1, up from 115% in the previous quarter, indicating a stronger liquidity position.

Earlier this week, HDFC Bank's share price reached an all-time high of Rs 1,791.90 per share on the Bombay Stock Exchange (BSE). This surge was driven by expectations of high passive fund inflows due to a likely increase in the bank's weightage in the MSCI index. The latest shareholding pattern indicated a drop in foreign institutional investors (FIIs) ownership below 55%, a factor anticipated to boost the stock's MSCI index weightage, thereby attracting more passive inflows.

However, by 10:35 am on Friday, the bank's shares were trading down nearly 5% at Rs 1,649 per share on the National Stock Exchange (NSE). Over the past year, the stock has provided a modest return of just over 3%.

Financial analysts have mixed reactions to the latest update. The sequential decline in advances and deposits has raised concerns about the bank's growth momentum, especially in the context of its strategy to reduce the low-yielding corporate book. However, the substantial YoY growth in advances and the improved liquidity coverage ratio are seen as positive indicators of the bank's underlying strength.

The CASA ratio decline is another point of concern, as it reflects a decrease in low-cost funding. This could potentially impact the bank's net interest margin (NIM), a key profitability metric. Analysts will be closely monitoring the bank's strategies to boost its CASA deposits in the upcoming quarters.

On the brighter side, the potential increase in the bank's weightage in the MSCI index is expected to bring in significant passive inflows. This, combined with the overall stability in the bank's deposit base and improved liquidity, could provide the necessary support for the stock in the near term.

HDFC Bank's latest business update presents a mixed bag of results. The sequential decline in advances and deposits highlights some challenges, while the strong YoY growth and improved liquidity coverage ratio make it watchworthy. Market participants will be watching how the bank explores the dynamics, especially in enhancing its CASA ratio and leveraging the expected passive fund inflows due to the MSCI index weightage adjustment.